Jitters for Mortgage Lenders

Article excerpt


YOU might think with this rapidly reviving housing market that mortgage lenders would be having a whale of a time handing out money.

In fact, it is tough for them.

Moody's Investors Service points out that though house prices have jumped dramatically in some areas, the volume of UK house sales has risen only slightly over the past year.

Its 'increasingly cautious' view of the long-term outlook for selected UK mortgage lenders sent a shiver through the sector, nudging Alliance & Leicester back 13p to 647p, Halifax 12p to 714p, Abbey National 4p to 871p and Woolwich 1 / 2 p to 316p.

Moodys predicts fierce competition will drive margins even lower, while the pool of customers will be limited by banks' tougher lending criteria.

Broker Dresdner Kleinwort Benson also threw in a cautious note. It says mortgage margins have slid almost 5pc in a year.

Costly 'giveaways' like cashbacks are going out of fashion, but this could reverse if the economy slows next year, warns analyst Simon Samuels. An overnight recovery in Asian markets failed to dispel the generally cautious mood of the market after Friday's 44-point fall on Wall Street.

New York opened buoyantly after lunch, lifting the Footsie off its low.

In rather dull, thin trade, the UK index closed down 9 points at 4985.2.

Economic figures did not help. UK manufacturing output, up 0.4pc in July and up 1.6pc over the year, was stronger than expected. A 2.3pc rise in annual industrial output also beat expectations.

Deutsche Morgan Grenfell economist Ciaran Barr said output growth could be holding up better than thought. He still expects the Bank of England Monetary Committee to leave interest rates unchanged at this week's meeting.

UK gilts followed Continental bonds higher, finishing over 1 / 3 point better. Sterling edged down 1 / 3 cent to $1.5823 and slipped marginally against the German mark to Dm2.8646.

Star of the day was British Aerospace. It flew 31p to 1567 1 / 2 p on unconfirmed reports that it will announce a [pounds sterling]300m-plus flotation of its Arlington property arm when it reports interims this Thursday.

Broker SG Strauss Turnbull fanned the buying spree by recommending a switch from Rolls-Royce to BAe. Analyst Andrew Crispin says margins at Rolls-Royce (up 2p to 230p) are being squeezed, while BAe offers secure earnings and dividend growth. …